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GBP/USD Escalates Following UK Employment Data: Dollar Index Hovers, Eyeing US CPI

The GBP/USD pair experienced an upward trajectory, approaching 1.2300 during the early hours of European trading on Tuesday. The movement was influenced by recent employment data from the UK, which indicated a steady International Labour Organization (ILO) Unemployment Rate of 4.2% over the three months leading to September. Concurrently, wage inflation, including bonus, saw a decrease to 7.9% from the previous 8.2%.

GBPUSD Daily Chart

GBPUSD Daily Chart

GBP News and Forecast

As per the latest news, the GBP/USD is predicted to undergo further consolidation according to UOB. The GBP/USD pair faced pressure near 1.2270 ahead of the UK employment data release.

Technical Overview

From a technical perspective, the GBP/USD pair reversed its direction after testing the 1.2200 mark. This area served as an intersection for the ascending trend line, the 23.6% retracement of the recent downtrend, and the 200-period Simple Moving Average (SMA) on the 4-hour chart. This highlighted the importance of this support level and the hesitation among sellers.

On the flip side, the pair’s immediate support lies at 1.2260 (50-period SMA), followed by 1.2300 (Fibonacci 38.2% retracement) and 1.2340 (static level).

Fundamental Overview

Below is a snapshot of key events and their outcomes:

GBP Average Earnings Including Bonus (3Mo/Yr)7.9%7.4%8.2%
GBP ILO Unemployment Rate (3M)4.2%4.2%
GBP Employment Change-207K-82K

The GBP/USD pair gained traction, advancing towards 1.2250 during the European trading session on Monday. However, the pair’s near-term technical outlook suggests that sellers are hesitant to bet on a persistent Pound Sterling weakness.

Political Landscape and Market Impact

The political landscape also saw significant changes, with British Prime Minister Rishi Sunak reshuffling the cabinet. Suella Braverman was dismissed as Home Secretary, replaced by James Cleverly. Former Prime Minister David Cameron was appointed as the new Foreign Secretary.

However, these developments had a minimal impact on the risk mood. The UK’s FTSE 100 Index was up 0.6% on a daily basis.

Upcoming Economic Indicators

Looking forward, the UK’s Office for National Statistics will release the jobs report, including wage inflation figures for October. Later in the day, the US will release the October Consumer Price Index data, which will be closely watched by market participants. Despite hawkish comments from Federal Reserve (Fed) Chairman Jerome Powell last week, markets are still pricing in an over 80% probability that the Fed will leave the policy rate unchanged in December.

If safe-haven flows dominate the financial markets in the latter half of the day, GBP/USD may struggle to maintain its position.

USD Index Hovers Near 105.70, Eyeing US CPI

The USD Index (DXY), a measure of the U.S. dollar against a basket of major currencies, has seen a fluctuation around the 105.70 mark this Tuesday. The index’s performance has been somewhat mixed, with gains and losses balancing each other out.

US Dollar Index Daily Chart

US Dollar Index Daily Chart

Importance of CPI and Federal Reserve Speeches

Investors have been cautious, keeping the index within a narrow band below the 106.00 mark, as they await key U.S. inflation data for October, which will be released in the North American session. This cautious sentiment is further reinforced by the relatively subdued movement in U.S. yields.

Adding to the market’s uncertainty are varying comments from different Federal Reserve officials, which have led to mixed expectations about the future course of the Fed’s monetary policy. Some investors believe that the central bank may continue its tight monetary policy for an extended period, while others feel that it might have completed its interest rate hikes.

In addition to the U.S. CPI data, speeches from FOMC’s M. Barr, Chicago Fed’s A. Goolsbee and Cleveland Fed’s L. Mester are also anticipated.

USD Market Dynamics

This week, the USD Index has faced a strong resistance level at 106.00, even as it recovered from lows below 105.00 earlier in the month. The dollar seems to have regained some momentum due to recent hawkish comments from Federal Reserve officials and the generally robust state of the U.S. economy. However, inflation continues to exceed the Fed’s target, posing a challenge.

A potential hurdle to the Fed’s tightening campaign could be the slowing down of the U.S. labor market, as indicated by the recent Nonfarm Payrolls data for October, which revealed a gain of only 150K jobs.

Key U.S. Economic Events This Week

Investors will be closely watching several key economic indicators this week. These include the Inflation Rate, MBA Mortgage Applications, Producer Prices, Retail Sales, Business Inventories, Initial Jobless Claims, Philly Fed Index, Industrial Production, NAHB Index, TC Flows, Building Permits, and Housing Starts.

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  • Phyllis Wangui

    Phyllis Wangui is a Financial Analyst and News Editor with qualifications in accounting and economics. She has over 20 years of banking and accounting experience, during which she has gained extensive knowledge of the forex, stock news, stock market, forex analysis, cryptos and foreign exchange industries. Phyllis is an avid commentator on these topics and loves to share her insights with others through financial publications and social media platforms.

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